This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research

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1 This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: A Program of Financial Research Vol 1: Report of the Exploratory Committee on Financial Research Volume Author/Editor: Exploratory Committee on Financial Research Volume Publisher: UMI Volume ISBN: Volume URL: Publication Date: 1937 Chapter Title: Characteristics of Banking Units and the Availability of Banking Facilities Chapter Author: Winfield W. Riefier, Chairman, David Friday, Walter Lichtenstein, J. H. Riddle Chapter URL: Chapter pages in book: (p )

2 Section C 77 System and the Federal Deposit Insurance Corporation, should be sought in connection with all phases of the work. CHARACTERISTICS OF BANKING UNITS AND THE AVAILABILITY OF BANKING FACILITIES Background In retrospect most banking authorities agree that the fundamental weakness of the American banking structure, when the crisis of broke over it, was an ex- cess of banking units and facilities. A persistent run of bank failures from 1922 to 1929 and a creeping concentration movement, manifesting itself in bank mergers, branch, chain and group banking, had diminished this surplus. Nevertheless, an excess of banking facilities remained the notable feature of the banking structure. As a matter of fact, banking laws, both Federal and state, which condition and determine that structure, were specifically framed with a view to preserving this feature. Differences in intent and effectiveness characterized banking law in different parts of the country, but did not materially alter the banking situation as a whole. The disastrous run of bank failures precipitated by the crisis of , the sweeping reorganization of banking facilities in 7933 and since, definitely changed the complexion of the problem from one of excess to one of dearth of facilities. Successive measures have been taken to rcmcdy this condition, and changes in banking laws, moderately favorable to banking concentration, have raised banking standards; banking authorities have moved slowly in licensing dosed banks and chartering new

3 78 Part Two ones; potentialities for banking profits have not been such as widely to attract new banking capital. Just as the prior surplus of banking facilities varied in economic and geographic regions, in urban and rural centers, so the present dearth is more acute in some areas and centers than in others. Specific Problem Public officials responsible for administering public policies of banking organization and active bankers interested in perfecting the banking structure are confronted with complex and difficult questions when they deal with the many aspects of the adequacy of banking facilities. Among the conspicuous gaps in materials avail-. able for their use is the absence of fully assembled and analyzed factual data that would: (r) suggest the minimum operating standards necessary for banks of different types and sizes in order to assure survival under aterage management and business conditions; (z) disclose the nature and sources of economies open to banks of different classes as well as identify the distinctive banking costs that may characterize banks of given types and size; () indicate the most effective composition of assets in relation to capital and deposit liabilities from the standpoint of profitability and capacity to withstand the tensions of variable business conditions; (.) provide a basis for judging the most effective size of banking unit in terms of community needs for credit and deposit facilities and of survival capacity of banks. A research project designed to fill this important gap must be primarily analytical in approach and method. For this reason, it is proposed that the collection and assembly of new data essential for its conduct be made the special or collateral task of subsidiary and related studies in-

4 Section C 79 dependently undertaken in connection with the National Bureau's general research program in the field of financial organization, as for example, the proposed studies in the area of bank earnings and expenses. Such studies should be planned with an eye to the factual requirements of this investigation and be related ultimately to it at all stages. There need be no delay in launching this study, however, because of any dependence on associated projects to provide working data. Some materials are already in existence and others are currently being collected in the course of special studies by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and several state banking departments.1 Much pertinent information could only be obtained in accordance with specific needs directly from' banking institutions and from Federal and state bank supervisory authorities.,the steps to be taken in this research and out, of which it would take shape and direction are, tentatively: ['1 A thorough survey of the findings of various banking investigations with the double purpose (a) of discovering clues and leads for further research, and (b) of developing a setting and historical background; [z] An intensive study of: (a) bank failures by size and location of bank; (b) the causes of bank failures as disclosed by the reports of the Federal Reserve Committee on Branch, Group and Chain Banking, by recent investigations of the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, by other official inquiries, and by studies sponsored by state bankers' associations; [] A special analysis 'of bank earning and expense 1 See footnote on p. 76.

5 8o Part Two data by type and size of bank, based on materials provided by the preceding project, to determine why some banks of special types and within different size classes earn more than others; [.] A special investigation of the extent of capital impairment, as a result of the crisis of , among size classes and by charter and membership status in cooperation with the Comptroller's office, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and Reconstruction Finance Corporation. [g] A parallel investigation of banking reorganizations and adjustments in capital structures of banks during , by type and size of bank. [6] A primary inquiry into the nature and sources of banking economies open to banks of different classes, together with a companion study of distinctive banking costs that characterize certain types and sizes of bank, based mainly on information gathered directly from banking institutions. ['fl An evaluation of the effects of varying economic conditions under which banks operate on the character of their activities, earnings and expenses, loss experience, etc., based largely on the findings of bank type studies recently completed or now in process, and also on studies of state banking developments sponsored by several state bankers' associations. Procedure The qualifications for the person competent to conduct this project are manifestly (a) an extensive acquaintance with banking literature and statistics,(b) a thorough knowledge of banking and credit theory, (c) a working familiarity with relevant statistical techniques, (d) a

6 Section C proved capacity for original, analytical research, (e) a demonstrated ability to cooperate with other research workers and agencies. Harmonious relations with the several banking supervisory authorities would need to be established and maintained throughout the investigation. Their special interest in the outcome of the study should afford ample justification for their unsparing collaboration and support. 8i

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8 PUBLICATIONS OF THE NATIONAL BUREAU OF ECONOMIC RESEARCH i INCOME IN THE UNITED STATES W. C. MITCHELL, W. I. KING, F. R. MACAULAY AND 0. W. KNAUTH Volume 1 (1921) Summary 152 pp. 2 Volume II (1922) Details o pp., $ DISTRIBUTION OF INCOME BY STATES IN 1919 (1922) OSWALD W. KNAUTH 30 pp., $1.30 *4 BUSINESS CYCLES AND UNEMPLOYMENT (1923) By the NATIONAL BUREAU STAFF and sixteen CoLLao- RATORS 405 *5 EMPLOYMENT, HOURS AND EARNINGS, UNITED STATES, (1923) WILLFORD I. KING 147 pp. 6 THE GROWTH OF AMERICAN TRADE UNIONS, (1924) LEO WOLMAN 170 pp., $z.o 7 INCOME IN THE VARIOUS STATES: ITS SOURCES AND DISTRIBUTION, 1919, 1920 AND 1921 (1925) 306 pp., $3.50 MAURICE LEVEN 8 BUSINESS ANNALS (1926) 380 pp., $z.go By W. L. THoRE, with an introductory chapter; Business Cycles as Revealed by Business Annals, by W. C. MITCHELL 9 MIGRATION AND BUSINESS CYCLES (1926) 256 pp., $z.o HARRY JEROME io BUSINESS CYCLES: THE PROBLEM AND ITS SETTING (1927) WESLEY C. MITCHELL 489 pp., $5.00 *11 THE BEHAVIOR OF PRICES (1927) F. C. MILLs 598 pp. 12 TRENDS IN PHILANTHROPY (1928) 78 pp., $1.00 WILLFORD I. KING 13 RECENT ECONOMIC CHANGES (1929) 2 vol., 950 pp., $7.50 By the NATIONAL BUREAU STAFF and fifteen COLLABORATORS 14 INTERNATIONAL MIGRATIONS 1,112 pp., $7.00 Volume I, Statistics (1929), compiled by IMRE FERENCZI of the International Labour Office, and edited by WALTER F. WILLCOX i 8 Volume Ii, Interpretations (1931), edited by WALTER F. WILL- COX 715 pp., $5.00 '15 THE NATIONAL INCOME AND ITS PURCHASiNG POWER (1930) WILLFORD I. KING 394 pp. 16 CORPORATION CONTRIBUTIONS TO ORGANIZED * Out of print.

9 COMMUNITY WELFARE SERVICES (193o) 347 pp., $2.00 PIERCE WILLIAMS and FREDERICK E. CROXTON ' PLANNING AND CONTROL OF PUBLIC WORKS (1930) LEO WOLMAN 260 pp., $2.50 *9 THE SMOOTHING OF TIME SERIES (ip) 172 pp. FREDERICK R. MACAULAY 20 THE PURCHASE OF MEDICAL CARE THROUGH FIXED PERIODiC PAYMENT (1932) 308 pp., $3.00 PIERCE '/VILiIAMS zi ECONOMIC TENDENCIES IN THE UNITED STATES: ASPECTS OF PRE-WAR AND POST-WAR CHANGES (1932) FREDERICK C. MILLS 639 pp., $ SEASONAL VARIATIONS IN INDUSTRY AND TRADE ('933) SIMON KUZNETS pp., $ PRODUCTION TRENDS IN THE UNITED STATES SINCE 1870 (1934) ARTHUR F. BURNS 363 pp., $ STRATEGIC FACTORS IN BUSINESS CYCLES (1934) JOHN MAURICE CLARK 238 pp., $ GERMAN BUSINESS CYCLES, 14-'9D (i) CARL T. SCHMIDT 288 pp., $z.go z6 INDUSTRIAL PROFITS IN THE UNITED STATES (1934) RALPH C. EPSTEIN 678 Pp., $ MECHANIZATION IN INDUSTRY (1934) 484 pp., $3.50 HARRY JEROME 28 CORPORATE PROFITS AS SHOWN BY AUDIT REPORTS () WILLIAM A. PATON 151 pp., $ PUBLIC WORKS IN PROSPERITY AND DEPRESSION ('935) ARTHUR D. GAYER 460 pp., $ EBB AND FLOW IN TRADE UNIONISM (1936) LEO WOLMAN 251 pp., $ PRiCES IN RECESSION AND RECOVERY (1936) FREDERICK C. MILLS 561 pp., $ SOME THEORETICAL PROBLEMS SUGGESTED BY THE MOVEMENTS OF INTEREST RATES, BOND YIELDS AND STOCK PRICES IN THE UNITED STATES SINCE 8g6 (in press) FREDERICK R. MACAULAY 500 pp., $5.00 THE BULLETIN Subscription to the National Bureau Bulletin ( issues, $i) may begin with any of the following numbers: '934 9 NATIONAL INCOME, , SIMoN KUZNETS 50 RECENT CORPORATE PROFITS, SOLOMON FABRICANT 51 RECENT CHANGES IN PRODUCTION, C. A. BLISS

10 52 GROSS CAPITAL FORMATION, , SIMON KUZNETS CHANGES IN PRICES, MANUFACTURING COSTS AND INDUSTRIAL PRODUCTIVITY, , F. C. MILLS WAGES AND HOURS UNDER THE CODES OF FAIR COMPETITION, LEO WOLMAN 5 PROFIT, LOSSES AND BUSINESS ASSETS, , SOLO- MON FABRICANT 56 ASPECTS OF MANUFACTURING OPERATIONS DUR- ING RECOVERY, F. C. MILLS 57 THE NATIONAL BUREAU'S MEASURES OF CYCLI- CAL BEHAVIOR, W. C. MITCHELL and A. F. BURNS 58 PRODUCTION in DEPRESSION AND RECOVERY, CHARLES A. BLISS INCOME ORIGINATING IN NINE BASIC INDUSTRIES, , SIMON KUZNETS óo MEASURES OF CAPITAL CONSUMPTION, , SOLOMON FABRICANT 6i PRODUCTION DURING THE AMERICAN BUSINESS CYCLE OF , W. C. MITCHELL and A. F. BURNS 62 REVALUATIONS OF FIXED ASSETS, , SoLoMoN FABRICANT 63 THE RECOVERY IN WAGES AND EMPLOYMENT, LEO WOLMAN I II STUDIES IN FINANCE A PROGRAM OF FINANCIAL RESEARCH Report of the Exploratory Committee on Financial Research 100 Pp., $t Inventory of Current Research on Financial Problems zoo pp., $1.50 EUROPEAN AGENT: MACMILLAN & CO., LTD. ST. MARTIN'S STREET, LONDON, W. C. 2

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16 National bureau of economic research, Inc. Exploratory committee on flrlancial research. A program of financial research... New York1 National bureau of economic research, in cooperation with Association of reserve city bankers v. 22. (Itoh-titLe: 1Natlonal bureau of economic reaerch1 Studies In finance, no 1) Corntrrs. v. 1. Report of the Explanatory committee on financial re'wsrch of the National bureau of economic reeearch. r. 2. Inventory of current research on financial problems. I. Flnanee U. 8; I. Association of reserve city bankers. it. TItle. In. Title: Financial research. Library of Congress H0181.N r41q OP:V./2.,:rz! zxrr..2 L '- k /

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